Up to four of a group of armed men who this morning launched a deadly ambush which killed an Israeli civilian along the Egyptian border are still loose inside southern Israel, a military spokeswoman told AFP.

"Three or maybe four terrorists are still inside Israeli territory and we are currently trying to find them," she said after militants, apparently from Sinai, infiltrated southern Israel and ambushed a convoy of Israeli construction workers along the border.

Israeli troops shot dead at least two militants while the others fled the scene, the army said.

Local residents in the Kadesh Barnea, Nitzana and Be'er Milcha were ordered to stay inside their homes which lie several kilometres from the border and very close to the site of the ambush, officials said.

The incident occurred 48 hours after militants in Sinai fired two rockets into Israel's deep south which did not cause any injuries or damage, but sparked an investigation by the military.

One rocket landed just outside the Negev desert down of Mitzpe Ramon, while the second landed near Uvda in the southern Arava desert, which is also the site of a small international airport some 40 kilometres (25 miles) north of the Red Sea resort town of Eilat.